The WSJ’s Jeff Bennett in Detroit says the rumors that PSA and GM were downgrading their alliance were wrong, and that signs point to the two companies going further, including possibly collaborating on commercial vehicles – which are a profitable, if unglamorous, segment of the European business.

Separately, Sergio Marchionne, chief executive of Italy’s Fiat S.p.A, unveiled a plan to spend 1 billion euros to refit a factory in southern Italy to build small sport utility vehicles – one for the Jeep brand run by Fiat’s partly-owned U.S. subsidiary Chrysler Group, and the other for Fiat to sell under its brands. The Jeep model will be exported to the U.S. All of the Jeep models currently sold in the U.S. are made in America.

All three companies face the same fundamental problem. European auto sales are down by 9% this year, and analysts expect them to fall again next year, albeit at a slower rate. Car makers have huge fixed costs in plants and labor, and when sales collapse, the red ink runs like the Danube. GM Europe, and its main European brand, Opel, are on track to rack up losses of $1.5 billion to $1.8 billion this year. PSA has had to take a lifeline from the French government. Fiat has warned it won’t make a profit until 2015.

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